Sectoral preferences of FPIs in month of December 2022

The FPI sectoral trend data published by NSDL for the month of December 2022 shows some interesting trends. But before we get to the sectoral trends, let us first look at the FPI flow story and how the FPI flows panned out month-wise in the recently concluded year 2022.

Data Source: NSDL (all figures in $ million)

Unlike the previous few years, year 2022 was a sharply negative year for FPI flows. However, what you must not miss out here is the sharp turnaround in the second half of the year. For the year 2022 overall, the net FPI outflows from Indian equities were to the tune of Rs1.21 trillion from Indian equities. However, if you break up the year into two halves, then H1-2022 saw net FPI selling of Rs2.17 trillion or $28.5 billion while H2-2022 saw net FPI buying of Rs0.96 trillion or $12 billion. This resulted in net FPI outflows in year 2022 of $16.5 billion. In December 2022, FPI infused $1.09 billion in the first half of the month and $260 million in the second half of December, taking their total December infusion to $1.35 billion.

FPIs were net buyers in customer facing sectors in December 2022

With net FPI inflows of $1.35 billion in December 2022, the million dollar question is, which are the sectors where the FPIs were net buyers. The broad theme for December was the focus on customer focused sectors. After all, in an uncertain global environment, it is these domestic driven customer facing sectors that actually hold better prospects. Here are some of the key sectors where FPIs were net buyers in December 2022.

1. FMCG attracted a lot of buying interest at $486 million. FMCG has typically been a defensive sector and most of the FMCG companies are largely dependent on domestic demand. Also, the cost pressures are easing and rural demand is likely to grow.
    

2. The story for consumer durables, which attracted $442 million in the month of December was almost the same. Among the consumer durables stocks, it was Titan that gained the most in terms of flows as it saw a sharp revival in its numbers.
    

3. Realty sector saw inflows of $394 million as most of the realty companies have not only been showing a pick-up in retail housing demand but also the demand for commercial property has been growing.
    

4. Finally, financial services with a customer facing focus on insurance, banking and consumer finance attracted $314 million in FPI flows in December. The broad theme among the top 4 positive flow sectors is the domestic consumption theme.

FPIs sold into IT and oil in December

There were 2 sectors that accounted for bulk of the FPI outflows in December 2022 and both are essentially globally exposed sectors, so the reasons are not hard to fathom. Now for these two sectors.

1. The IT sector saw net FPI outflows of $433 million in December 2022. IT sector has been under pressure due to concerns over a global slowdown. JP Morgan has indicated that revenue growth could fall from mid-teens to around 8% levels. Weak economic growth could also hit tech spending and pricing power of IT companies.
    

2. The other sector that saw aggressive FPI selling is oil & gas, which saw outflows of $337 million For oil sector, there are two worries. Higher oil prices are likely to enhance the subsidy burden of downstream oil companies. Simultaneously, upstream oil companies are likely to be hit by the windfall tax on domestic output and exports. It hits both ways.

Not just about flow, but also about FPI stock?

FPI stock is measured by the assets under custody (AUC). FPI AUC in India had peaked at $667 billion in October 2021 and fallen all the way to $523 billion in June 2022. As of the close of December 2022, the total AUC of FPIs in India stands at $584 billion. The AUC is still about 12.5% below the peak, although the markets have already scaled the highs again. It can be attributed to heavy FPI selling and risk-off attitude of FPIs. Here are top 8 by AUC.

Data Source: NSDL

Not surprisingly, Financials account for 32.95% of overall FPI AUC, corresponding to their weight in the Nifty index. The other significant AUC contributors were Oil & Gas, Information Technology, FMCG and Automobiles.

After heavy selling by FPIs in 2022, there are some bright prospects for 2023. Hopefully, there should soon be clarity on the peak Fed funds rates, which is when fresh allocations to EMs should pick up steam. Till then, India’s distinction of being the fastest growing large economy should hold good.